PFSWEB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PFSweb, Inc. and its subsidiaries, including Supplies Distributors, Inc, and eCOST.com, Inc.
are collectively referred to as the Company; Supplies Distributors refers to Supplies
Distributors, Inc. and its subsidiaries; eCOST refers to eCOST.com, Inc.; and PFSweb refers to
PFSweb, Inc. and its subsidiaries excluding Supplies Distributors and eCOST.
PFSweb is an international business process outsourcing provider of end-to-end eCommerce
solutions to major brand name companies seeking to optimize their supply chain and to enhance their
traditional and online business channels and initiatives in the United States, Canada, and Europe.
PFSweb offers such services as professional consulting, technology collaboration, managed web
hosting and internet application development, order management, web-enabled customer contact
centers, customer relationship management, financial services including billing and collection
services and working capital solutions, information management, facilities and operations
management, kitting and assembly services, and international fulfillment and distribution services.
Supplies Distributors Overview
Supplies Distributors, PFSweb and InfoPrint Solutions Company (IPS), a joint venture company
owned by Ricoh and International Business Machines Corporation (IBM), have entered into master
distributor agreements under which Supplies Distributors acts as a master distributor of various
products, primarily IPS product.
Supplies Distributors has obtained certain financing (see Notes 3 and 4) that allows it to
fund the working capital requirements for the sale of primarily IPS products. Pursuant to the
transaction management services agreements between PFSweb and Supplies Distributors, PFSweb
provides to Supplies Distributors transaction management and fulfillment services, such as managed
web hosting and maintenance, procurement support, web-enabled customer contact center services,
customer relationship management, financial services including billing and collection services,
information management and international distribution services. Supplies Distributors does not have
its own sales force and relies upon IPSs sales force and product demand generation activities for
its sale of IPS products. Supplies Distributors sells its products in the United States, Canada
All of the agreements between PFSweb and Supplies Distributors were made in the context of a
related party relationship and were negotiated in the overall context of PFSwebs and Supplies
Distributors arrangement with IPS. Although management believes that the terms of these agreements
are generally consistent with fair market values, there can be no assurance that the prices charged
to or by each company under these arrangements are not higher or lower than the prices that may be
charged by, or to, unaffiliated third parties for similar services.
eCOST is a multi-category online discount retailer of new, close-out and recertified
brand-name merchandise, selling products primarily to customers in the United States. eCOST offers
products in several primary merchandise categories, including computers, networking, electronics
and entertainment, TVs, monitors and projectors, cameras and camcorders, memory and storage, For
the Home and sports and leisure. eCOST carries products from leading manufacturers such as Sony,
JVC, Canon, Hewlett-Packard, Denon, Cuisinart, Sennheiser, Garmin, Panasonic, Toshiba and Microsoft.
The Companys liquidity has been negatively impacted as a result of the merger with eCOST.
Since the merger, eCOST has experienced a net use of cash primarily due to operating losses. As a
result, the Company has had to support eCOSTs cash needs with the goal of reducing operating
losses. The amount of additional cash needed to support eCOST operations will depend upon working
capital requirements, bank financing availability as well as eCOSTs continued ability to improve
its financial results. Further advances to eCOST may be limited by the Companys current cash and
future cash flow and may be restricted by the Companys credit facility obligations.